Should You Sell Your Home to Pay Off Debt?

Selling your home to pay down your debt should be the very last resort, says financial planner Travis Bailey.

With more than 16 years experience, Mr Bailey, a senior financial planner at Honan Financial Services, says you need to look at the root of the problem before you sell your house to clear debt.

“People really need to ask themselves: Why am I in debt? You need to identify the source of the debt before you can properly address it,” he said. “Is it a result of poor money management or is the property you have too expensive for your lifestyle?”

Mr. Bailey believes that selling a house to pay off debt is only treating the symptom, not the illness.

“If you can afford to keep the house, then you have to learn how to manage your money. Usually there’s a way to get around that first before making that drastic decision”, added the financial planner.

Other options include:

extinguishing other debt

selling off smaller assets

giving up every day luxuries

finding another source of income.

However, Mr. Bailey specified that all of the above alternatives were secondary to looking at your budget and should only be considered after a thorough examination of your finances.

“You have to go back to basics, even myself and my partner have to do a budget every six months,” he said. “Look at your cash flow first; if you can afford things in your budget, you can make changes and if not, look at your other debt — car loans and credit cards hold higher interest rates and sometimes you can refinance or consolidate your debt. Interest rates on those might be between 10-20% whereas home loan interest rates are quite low right now and you can consolidate those other debts and put it into your home loan.”

Mr Bailey advised that, in some hardship circumstances, it wouldn’t hurt to look at refinancing your home loan as an alternative strategy to pay off your debt. He said a finance broker or bank other than your own may be able to extend the terms of your home loan to then reduce your fortnightly or monthly mortgage payments.

“Restructuring your debt to get a better interest rate may be an option,” he said.

However, Mr. Bailey warned that, in order for a person to come out from under the weight of crushing debt, they must spend time analysing their budget, rather than jumping to the decision of selling their house and renting instead. Many people have never properly broken down their finances and only have a rough idea of their spending. Most of them would be surprised by the amount of dispensable expenses that could be reduced.

“You’ve gotta spend the time talking about it (and) really mapping out in a budget where things are going and how much you can allocate yourself. It’s quite easy to blow out of a budget and find that you’ve put money on a credit card without receiving extra income or a pay rise and it can implode. One of the harder things to do is to save for a house deposit…by selling your property, you’re forgoing so much — it’s something you may never recover from.” he said.

Let’s face it, no one is getting another home loan when they have a huge amount of debt.

To avoid having to sell your home as a last and drastic resort, Debt Mediators’ no-loan no-interest debt solution is the fastest way to clear debt. Selling your home is an extreme solution that can be avoided under the proper conditions.

Please keep in mind that it will leave a temporary notation on your credit file, which will be removed after 5 years.

While Mr Bailey admitted money management was hard in a society where credit was so accessible and spending so flippant, he offered one last word of advice, which he himself follows daily:

“If you don’t have the money, don’t spend it.”

Debt Mediators provides a range of calculators to assist you in gaining a deeper understanding of your finances:

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